G7 cooperation with China on climate-aligned trade is vital

G7 countries should work with China to put in place climate-aligned trade policies needed to accelerate global climate action, by harnessing the power of international trade to promote innovation, reduce costs, and stimulate demand for green goods, write Matt Piotrowski and Joseph Dellatte.

Matt Piotrowski is a senior director of policy and research at Climate Advisers. Joseph Dellatte is an Asia Program Resident Fellow in Climate, Energy, and Environment at Institut Montaigne.

French President Emmanuel Macron and China’s Xi Jinping agreed in their recent meeting to expand green energy cooperation, as did US Climate Envoy John Podesta and his Chinese counterpart. Despite these positive steps toward a green transition, a significant gap remains between China and the West on using trade policies to achieve climate goals.

In the past years, the G7 has made important strides in aligning trade policies with climate goals. The group should continue its momentum on climate and trade by embracing “interoperability” for emissions data systems at the Leaders Summit in Apulia, Italy, on June 13-15.

The urgency for greater ambition on climate-aligned trade is obvious: Today, international trade –traded goods and their supply chains – accounts for 25% of global GHG emissions.

By continuing to prioritise such policies, the G7 can take an even larger leadership role on climate change and send powerful signals to China and other major players.

Last year, the G7 Climate, Energy and Environment Ministers found important common ground on trade and climate issues.

They highlighted the importance of emissions intensity in addressing carbon leakage – the shifting of greenhouse gas (GHG) emissions from one country to another by moving manufacturing from countries with ambitious climate policies to countries with less stringent policies.

They also agreed to work together on data and technical issues, emphasizing the importance of developing relevant measurement standards and data collection. These actions built on the G7 creating the Climate Club in 2022, the mandate for which includes collective action on trade.

G7 leadership is particularly important in promoting increased cooperation on aligning accounting of embodied GHG emissions for traded products such as steel, aluminium, and chemicals.

Increased coordination on standards and verification protocols for GHG accounting is vital for establishing a foundation for an international trading system that spurs innovation and investment in green technologies and sustainable practices.

For this foundation, we need consistent, reliable GHG data to implement smart climate and trade policies necessary to get to net zero emissions by mid-century.

A key aspect of this strategy involves committing to the concept of “interoperability” of emissions data systems.

Interoperability is the ability of countries to operate in conjunction with each other and exchange information while allowing for flexibility and variation across domestic regulatory, trade, and environmental policy.

In an interoperable system, countries can develop their own rules and strategies to reduce the GHG intensity of traded goods but they would still be able to coordinate with each other to reduce emissions and share resources needed for accurate monitoring, reporting, and verification of GHG emissions data, all while avoiding conflict.

Driving alignment to the maximum extent possible, an interoperable system would allow for comparing data sources and methodologies for calculating embodied GHG emissions at the product, facility, or sectoral level.

By ensuring that product-level accounting regimes are designed to be interoperable, G7 members can be broadly aligned on important key policy measures such as carbon import fees, subsidies, procurement, and other climate policies important for building a robust system that aligns trade with climate goals.

Achieving global science-based climate goals, including reaching the long-term objectives of the Paris Agreement, will not be possible unless nations adopt climate-aligned trade policies to reduce GHG emissions.

Aligning trade policies with climate goals will require a multi-year process. There is already significant movement in the policy arena: For instance, the EU is currently implementing its Carbon Border Adjustment Mechanism (CBAM) – a carbon fee on imports of carbon-intensive goods, and other countries are considering their own CBAMs.

In the United States, the Inflation Reduction Act included massive subsidies for green technologies, and its climate czar John Podesta recently announced a task force on climate and trade.

More effective climate-aligned trade policies are needed to accelerate climate action by harnessing the power of international trade to promote innovation, reduce costs, and stimulate demand for green goods.

To create a system in which trade policies can help us meet our long-term climate goals, the G7 can use the Leaders Summit this year to embrace interoperability, which is key to deepening collaboration and promoting effective trade policies that reduce emissions and support sustainability while also ensuring equity and fairness.

Consensus solutions on GHG emissions accounting agreed to by G7 nations can also attract broader political support among other nations, particularly China, and provide a path forward for engaging Beijing and other emerging markets and developing economies on emissions accountability and data access.

Cooperation with China on climate-aligned trade will be mutually beneficial for Beijing and the West and help strengthen global cooperation on climate.